MONITOR AND REVIEW BUDGET

MONITOR AND REVIEW BUDGET

Assessment Submission details:

Please include following details on the top of your assessment:

Your Name

Your Student Id

Your Trainer’s name

Assessment Due Date

Actual Submission Date

Please Note: Any changes in the assessment due date must be approved by your trainer.

This assessment must be in Microsoft word format. Following settings should be made for this assignment to keep consistency among all the assessments:

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Do not forget to attach the Cover Sheet at the front of the assessment.

Make sure you have signed the Cover sheet to declare this is your own work.

You can e-mail this assessment to your trainer’s e-mail address with following details:

In ‘subject’ mention your ‘student Id – Your name’.

Achieving Competence:

To be deemed competent in this assessment you must:

Correctly address all of the assessment requirements as described in this task

Correctly address all of the submission instructions

Successfully complete the Assessment Questions

Submit assessment on or before the due date with an assessment cover sheet


Performance objective:

In this task, you are required to monitor the implementation of a budget and report on the variances, trends and performance of the established budget for a fictional business and provide recommendations for ongoing financial viability.

Assessment description:

You will need to review the provided current case study information and compare it to the budget you established in Assessment Task 1. After evaluating these you will need to report on the following:

significant issues

variances from budget

comparative performances

recommendations for ongoing financial viability

evaluation of financial management processes.

Assessment Questions:

Read the case study.

Develop a variance report based on the format and template provided by Houzit.

Complete a cash flow analysis on the average length of time it takes Houzit to collect funds from its debtors to determine the trend based on the financial reports in Assessment Task 1.

Examine the sales budget, profit budget, cash flowbudget and debtor ageing summary to identify the following:

Issues:

Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issue of financial probity that you have identified or considered when monitoring these budgets.

Variances:

Complete an actual-to-budget variance report, using the template provided in the case study.

Identify variances by comparing actual results with the established budget and provide reasons why these variances may have occurred.

Performance:

Compare financial performance of the organisation (according to financial information provided) to industry benchmarks for this organisation in line with the retail trade sector.

Respond to the performance questions provided by the CEO, as provided by the board of Houzit,

Determine a trend of the average debtor days and the impact to the cash flow of Houzit.

Recommendations:

Outline your recommendations for ongoing financial viability for the organisation, based on your assessment of the issues, reasons for variances and organisational performance you have identified (Steps 1–3).

Include in this section your plans for a revised budget, effectively managing contingencies and issues that have been identified in feedback and monitoring of the budgets.

Evaluation:

Provide a summary review of the financial management processes in place for the organisation, in light of your assessment of the issues, reasons for variances and organisational performance you have identified. Include in this section any recommendations you have for modifying management processes.

Specifications:

You must provide:

a complete actual-to-budget variance report

a completed report detailing the issues, variances, performance, recommendations and evaluations identified from the financial information for Houzit Pty Ltd.

Your assessor will be looking for:

Evidence that you reviewed the provided case study information to develop an evaluative report concerning the progress of the budget.

Case study

Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit’s accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis.

The key questions that the board was most interested to have answered from the budgets and the variance reports were:

To what extent do the reports support the view of the board that Houzit is financially viable?’

Will we be able to maintain our gross profit margins in the predicted downturn?’

Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales.

That’s going to hurt us at some point’Jim said. ‘Just a pity we could not get into some national magazines this quarter to promote the store offers. I’m sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter’ Jim said.‘I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales’

Jim went on to explain,‘One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits.It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.’

You are a beneficiary of the company’s profit bonus scheme that is based on the profitability of the company’s financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department’s report as well.

You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011.

Houzit Pty Ltd

Actual Results

Qtr 1

Revenue

Sales

3,371,200

Cost Of Goods Sold

1,955,296

Gross Profit

1,415,904

Gross Profit %

42%

Expenses

Accounting Fees

2,500

Interest Expense

28,150

Bank Charges

380

Depreciation

42,500

Insurance

3,348

Store Supplies

790

Advertising

150,000

Cleaning

3,325

Repairs & Maintenance

16,150

Rent

660,127

Telephone

3,100

Electricity Expense

5,245

Luxury Car Tax

12,000

Fringe Benefits Tax

7,000

Superannuation

37,404

Wages & Salaries

410,500

Payroll Tax

19,741

Workers’ Compensation

8,312

Total Expenses

1,410,572

Net Profit (before tax)

5,333

Income Tax

1,600

Net Profit

3,733

GST cashflow – Actual

Cash flow analysis – GST

Qtr 1

GST Collected

337,120

Less GST Paid

279,988

GST Payable

57,132

Aged debtors – Actual

AGED DEBTORS BUDGET

Qtr 1

Sales

3,371,200

% Debtors Sales

22%

Total Debtors

741,664

Current

585,915

30 days

111,250

60 days

37,083

90 days

7,417

Total Debtors

741,664

Budgetvariance report template

According to the organisational policy and procedures, the following format is to be used when preparing a budget variance report.

Houzit Pty Ltd

Variance to Budget

xxx Quarter ended mmm-yyyy

Actual Results

Budget-Qx

Actual-Qx

$
Variance

% Variance

F or U

Sales

x,xxx

x,xxx

x,xxx

x%

F or U

Cost Of Goods Sold

x,xxx

x,xxx

x,xxx

x%

F or U

Gross Profit

Calculation

Calculation

Calculation

x%

F or U

Gross Profit %

%

%

%

x%

F or U

Expenses

Accounting Fees

x,xxx

x,xxx

x,xxx

x%

F or U

Interest Expense

x,xxx

x,xxx

x,xxx

x%

F or U

Bank Charges

x,xxx

x,xxx

x,xxx

x%

F or U

Depreciation

x,xxx

x,xxx

x,xxx

x%

F or U

Insurance

x,xxx

x,xxx

x,xxx

x%

F or U

Store Supplies

x,xxx

x,xxx

x,xxx

x%

F or U

Advertising

x,xxx

x,xxx

x,xxx

x%

F or U

Cleaning

x,xxx

x,xxx

x,xxx

x%

F or U

Repairs & Maintenance

x,xxx

x,xxx

x,xxx

x%

F or U

Rent

x,xxx

x,xxx

x,xxx

x%

F or U

Telephone

x,xxx

x,xxx

x,xxx

x%

F or U

Electricity Expense

x,xxx

x,xxx

x,xxx

x%

F or U

Luxury Car Tax

x,xxx

x,xxx

x,xxx

x%

F or U

Fringe Benefits Tax

x,xxx

x,xxx

x,xxx

x%

F or U

Superannuation

x,xxx

x,xxx

x,xxx

x%

F or U

Wages & Salaries

x,xxx

x,xxx

x,xxx

x%

F or U

Payroll Tax

x,xxx

x,xxx

x,xxx

x%

F or U

Workers’ Compensation

x,xxx

x,xxx

x,xxx

x%

F or U

Total Expenses

Calculation

Calculation

x,xxx

x%

F or U

Net Profit (Before Tax)

Calculation

Calculation

x,xxx

x%

F or U

Income Tax

Calculation

Calculation

x,xxx

x%

F or U

Net Profit

Calculation

Calculation

x,xxx

x%

F or U

Note: F = Favourable, U = Unfavourable

Debtor ageing ratio template

2009/10

2010/11

2011/12

Trade Debtors

Sales

Debtor Days

Anticipate that the trade debtors for the 2011/12 financial period maintain the same growth as that which took place between 2009/10 to 2010/11.